Futures Point To A Stronger Open
INTEREST RATES
The monthly unemployment report today seems to
have less incendiary capacity than the prior reports, as the market isn’t as
keyed up in anticipation of a rate hike, as in the prior three reports. However,
it is always possible that the report could surprise the trade with
significantly strong numbers, but the odds would seem to favor an as expected
reading. However, if there were to be a major surprise in the form of a weaker
than expected number, we are not sure that bonds would be able to mount more
than a 2 point rally.
STOCK INDICES
The stock market continues to hold together but
it is clear the bull camp isn’t gathering strength. In fact, we are not sure
that additional declines in energy prices is going to provide buying power to
stocks, as was seen early in the week. Today is a difficult day for stocks, as
the monthly payroll report will dominate sentiment.
DOW
We think that the June Dow should be able to respect support of 10,185 today
unless the payrolls are significantly softer than expectations. In fact, unless
the payroll gain is below 170,000 we suspect support will hold. It is also
possible, but unlikely, that payrolls could be so hot that they promote rate
hike fears, but considering some of the recent numbers from the US, it wouldn’t
hurt the bull case to get a good return shot of strong growth prospects from the
report. Maybe the Dow is set to rise but we don’t like the risk and reward of
fresh longs from current levels.
S&P
The S&P doesn’t usually do well off a consolidation pattern and that is exactly
what is beginning to take shape on the charts. We think that the stock market
needs a strong report today just to countervail some disappointing numbers
already released this week. We also think that falling energy prices have given
the market some pep this week or the S&P might have come into the report today,
much closer to the 1100 level. We think that support of 1114.50 is capable of
holding prices up today, unless something strange comes out of the report. For a
position trade we had hoped to buy a break down to 1104. A major upside reversal
signal might be registered with an early rise above 1124.50.
FOREIGN EXCHANGE
US DOLLAR
The Dollar really needs to see a strong number today
or the trade will probably turn sellers on the Greenback. We think that the
gains this week were technical in nature and that the fundamental track for the
Dollar is pointing down. Therefore, for the Dollar to mount and sustain an
upside pulse it would seem necessary to get numbers that fully reconfirm the
recovery but also raise the potential for a June rate hike. In fact, with some
of the weak numbers recently floated, the market is closer to doubting the
recovery in the US than they are to suspecting higher interest rates are ahead.
In other words, recent Fed dialogue and the pace of the US numbers have lowered
the rate hike probability and that is why we suspect that the Dollar is in a
fundamental down trend. In conclusion, the payroll report will have to change
current sentiment for the Dollar to come out a winner at the end of the day.
Therefore, Dollar bulls need a payroll above +220,000 and might even need a
decline in the unemployment rate.
EURO
While the chart setup in the Euro is somewhat
negative, we have to hold with the bull view. However, because the Euro zone
numbers aren’t that impressive we are an extremely skeptical bull toward the
Euro. In fact, we are so skeptical that we would prefer to make our bets against
the Dollar in other currencies. Certainly the German April manufacturing reading
released overnight was much stronger than expected and that helps shore up
fundamental sentiment toward the Euro. In conclusion, forced into the market we
think the Euro can rally but we think the risk is too high for along play.
YEN
Like the Euro, the Yen comes into the session today
with a negative chart setup. In fact, a decline below 89.80 today could be
considered a major technical failure and a decline back to 89.20 likely.
^next^
SWISS
If we were to pick one currency that has the most
vulnerability it would be the Swiss. After the massive rally off the April lows,
it now sits right on a long term upside breakout point and doesn’t seem to have
much in the way of support until 78.80. Maybe the trend is up but we want
nothing to do with the long side.
BRITISH POUND
Those that are long the Pound might want to purchase
a put against their position as a hedge against coming action. If we had to pick
a currency to gain against the Dollar it would be the Pound but massive overhead
resistance seems to make the play unattractive.
CANADIAN DOLLAR
It would seem like the Canadian has built a solid
uptrend pattern off the recent lows. In fact, the Canadian might be the best
currency to be long, of all the currencies mentioned today. Certainly the
Canadian is up significantly from the May lows but it is still well down in the
last 6 months range and might be able to benefit in the event that the US Dollar
actually rallies. Therefore consider buying a Sept Canadian, buying a July 73
put and selling a July 75 call.
METALS
OVERNIGHT
London A.M. Gold Fix $388.10 -$3.30 LME
COPPER STOCKS 128,200 mt tons -1,625 tns COMEX Gold stocks 4.391 ml Unchanged
Comex Silver stocks 117.9 ml -465,534 oz
GOLD
The gold market is in a downward tilt on the charts
and with the Dollar attempting to show signs of recovery, we suspect that light
pressure will be seen in gold. In fact, we are not sure if the gold market is
that dependant the US numbers, but the trade is already expecting somewhat
strong US economic readings and the Dollar could be disappointed in the event
that the numbers fail to impress. It does seem like sagging energy prices have
put pressure on gold, as that either reduces the inflationary threat or simply
lowers the uncertainty of the future.
SILVER
The charts continue to look ugly and we see little
solid support until July reaches the $5.50 level. In fact, we wouldn’t be
surprised to see a temporary slide below $5.47 and then for the market to recoil
away from those lows, as the funds swoop in to pick up value. The silver market
might need improved global economic activity even more so than the gold market!
Early this week July silver fell back below the 40 day moving average and now
looks to be in the process of flushing out another layer of weak handed longs.
PLATINUM
While the platinum market certainly appeared to be
capable of rejecting the weakness seen in other metals markets, it has now
succumb to the weakening pattern. We are actually surprised that the Chinese
tightening talk didn’t instantly throw platinum lower but now the charts look
pretty negative and a return to 809 is possible, especially if US numbers today
are soft.
COPPER
Shanghai copper stocks decline by 6,391 tons and
that decline certainly helps discount some of the fears of rising Chinese
interest rates. While copper showed an impressive run-up off the May lows that
move now looks to be suspect. In fact, with copper prices falling in the face of
significant declines in energy prices, it is clear that the concern for future
demand from China is undermining copper sentiment.
CRUDE COMPLEX
We suspect that technical liquidation efforts
played as much of a roll in pressing prices Thursday as the actual OPEC
statements. Apparently the market is at least partially convinced or at least
fearful of increased near term supply but with the small spec and fund positions
still overly long, the stop loss selling binge was to be expected. The OPEC
promise to increase the quota by roughly 11% would seem to mean more oil but the
question should be just how quickly that oil will reach the market and more
importantly will that supply reach the US? However, we do think that the spec
long contingent is being pared down aggressively and that could begin to make it
more difficult to press prices.
NATURAL GAS
The weekly natural gas inventory report showed an 87
bcf injection, with the annual deficit coming in at 365 bcf. While the weekly
injection was mostly as expected, the annual surplus narrowed slightly and some
might see that as a positive. The July natural gas market remains vulnerable to
more downside liquidation, especially if the Thursday low is revisited at $6.26.